Bailout

That has been the mantra of the Bush administration and Republicans for year, and it was even included in the TARP:

Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

The Republicans spent last week whining and complaining that we couldn’t spend $14 billion to help protect millions of blue collar jobs, yet they don’t bat an eye when we taxpayer money is wasted on these golden parachutes. Why? Because that money goes to the upper class. The Republicans have been on the front lines of this class warfare, trying to squash the middle class. Hopefully the Democrats will fight back for 95% of this nation. If they don’t, then the U.S. is in for really dark times.

The talk right now is that the White House will use TARP funds to bailout the auto industry. This was what Democrats originally wanted to do, but the White House opposed. Hopefully when/if the White House does it, they will show some balls and call out the Republicans for blocking the bailout last night. I doubt that will happen though, as the Republican motto is “party before country”.

That’s the message sent out by Senate Republicans last night as the auto bailout failed:

Their efforts in Congress squashed, U.S. automakers are depending upon a reluctant White House to quickly provide a multibillion lifeline to help them avoid imminent collapse.

General Motors Corp. and Chrysler LLC, which have said they could run out of cash within weeks, have few options left after the dramatic defeat in the Senate of a $14 billion bailout for the domestic auto industry.

Its demise late Thursday prompted immediate calls from lawmakers in both parties for the Bush administration to tap into the $700 billion Wall Street bailout to rescue the beleaguered auto industry. The bill failed after talks broke down over the refusal of the United Auto Workers union to meet Republican demands for aggressive wage reductions.

The markets are going to fall big today. They already have overseas. But we should all be happy since the big financial CEOs still get their huge bonuses and salaries.

I’m sure everyone has heard about this by now:

On the chilly factory floor of the Republic Windows and Doors plant, Apolinar Cabrera and a couple hundred workers have decided to make their stand.

Their jobs evaporated Friday when this Chicago company unexpectedly closed its doors, blaming lender Bank of America for cutting off its credit line and preventing it from paying the workers' severance and vacation.

Cabrera and his co-workers have refused to leave.

"We need only what is promised to us, nothing more, nothing less," said Cabrera, a 17-year veteran of the plant who hasn't been home to see his pregnant wife and two children in four days. "I know the economy is bad . . . but this just isn't right to do this to us."

This is now the face of the recession, but also an important lesson in history. This is happening in the very same town that brought us organized labor and such things as employee rights, the 40 hour work week and minimum wage. These people aren’t only standing up for their own interests – they are standing up for the interests of a majority of Americans.

This is also just the start. If more and more people loose their jobs while the taxes they have worked so hard to pay go to these big corporations then this country will once again experience a labor movement that it hasn’t seen since the 1860’s.

Eliot Spitzer is back, this time as Slate’s newest columnist:

Last month, as the financial crisis and the government rescue plan dominated headlines, almost everyone overlooked a news item that could have enormous long-term impact: <a href="http://www.avbuyer.com.cn/e/2008/30063.html">GE Capital announced the acquisition of five mid-size airplanes—with an option to buy 20 more—produced by CACC, a new, Chinese-government-sponsored airline manufacturer.

Why is that so significant? Two reasons: First, just as small steps signaled the Asian entry into our now essentially bankrupt auto sector 50 years ago, so the GE acquisition signals Asia's entry into one of our few remaining dominant manufacturing sectors. Boeing is still the world's leading commercial aviation company. CACC's emergence—and its particular advantage selling to Asian markets—means that Boeing now faces the rigors of an entirely new competitive playing field and that our commercial airplane sector is likely to suffer enormously over the coming decades.

But the second implication is even bigger. The CACC story highlights the risk that current bailouts—a remarkable $7.8 trillion in equity, loans, and guarantees so far—may merely perpetuate a fundamentally flawed status quo. So far, at least, we are simply rebuilding the same edifice that just collapsed. None of the investments has even begun to address the underlying structural problems that are causing economic power to shift away from the United States, sector by sector:

Spitzer goes on to say something I have been wondering out loud about. If these financial institutions are “too large to fail”, then hasn’t our government failed by allowing them to grow to such sizes? I believe something that needs to be looked at in all these bailouts is the government stepping in and breaking these mega-corporations apart. They now hold us by the short hairs, and that isn’t a pleasant notion considering the lack of judgment these CEOs show when it comes to common sense versus profit.

Let me put this another way. We have a super giant financial corporation. Let’s call it Scrooge Financial, in the spirit of the holiday. Well the CEO, Ebenezer, was just give a sweetheart of a deal by some Saudi Prince. Essentially that prince now gets control of the corporation and Mr. Scrooge gets more money than he could have dreamed of. It should also be mentioned that Scrooge Financial is one of the major holder of mortgages in our country. ~~lt;/p>

Now since there was no real oversight of this deal, no one knew that this prince was also a close friend of Osama bin Laden’s. OOPS! Now the new head of this company can simply start making some very bad deals in and put the company on the brink. Scrooge Financial is too big to fail, so our government has to step in and give them a bail out. Hey – thanks for helping Uncle Sam!

It all goes back to bin Laden saying he would bankrupt the west. Is the current financial crisis his doing? No, but we need to put protections in place to make sure our companies can’t fall into evil control like Scrooge Financial. The best protection for that is to eliminate corporations that are “too big to fail”. Hopefully a Democratically controlled government will do just that.

Ford’s CEO agrees to a paycut:

Ford Motor became the first of the three U.S. automakers to unveil its turnaround plans to Congress Tuesday, but the plan contained little in the way of new cost cuts or other changes beyond what the company had previously announced.

The company announced that the salary of Ford CEO Alan Mulally would be cut to $1 a year if Ford (F, Fortune 500) actually borrowed money from the government. When Mulally appeared before the House Financial Services Committee last month, he said he would not agree to a paycut.

Ford also announced that it would sell its five corporate jets. Mulally and the CEOs of General Motors (GM</a>, Fortune 500) and Chrysler LLC received great criticism for each flying their own corporate jets to Washington to ask for help last month.

Of course there is no mention of bonuses. That’s always the catch-22 in these deals. “Sure I’ll work for $1 a year, but I want a $50 million bonus”. Hopefully Congress holds their feet to the fire.

Paulson has announced he is spending an additional $600 billion to buy up toxic mortgages:

The Federal Reserve announced Tuesday that it will purchase up to $600 billion in mortgage-backed assets, the toxic assets that have been weighing down embattled government-sponsored enterprises like Fannie Mae (FNM: News ) and Freddie Mac (FRE: News ).

Buying troubled assets – what a novel idea! Isn’t that what TARP was for? Yes it was, but that moron Paulson decided to do something else. So we have $600 billion on top of the $700 billion approved by Congress. When will the hemorrhaging stop?

These companies that are being given lifelines by our government are like a bunch of children. They want all the money, but don’t want to take on any responsibility. Here’s a perfect example:

AIG, Citibank and a number of other federally bailed-out financial institutions have no plans to cancel hundreds of millions of dollars in sports team sponsorships, even as they take billions in taxpayer support, ABC News has found.

In boom times, the sponsorships were seen as a way to advertise the firms' "brands" and appeal to potential customers. Even today, at least one bank told ABC News that a naming deal was increasing its revenue. But critics, including a member of Congress, say the decision to continue them now is hard to defend.

Struggling Citibank just sealed a multi-billion-dollar emergency &quot;backstop" deal with the U.S. government. The financial behemoth, suffering with billions in bad mortgage-related assets on its books, recently shed 53,000 workers and saw its stock price lose over half its value. Yet it's in a 20-year contract to pay the New York Mets $400 million to name the team's new stadium "Citi Field."

"This type of spending is indefensible and unacceptable to Citigroup's new partner and largest investor: the American taxpayer," said Rep. Elijah Cummings, D-Md., in a statement Monday. </p>

So as the economy continues to tank and more people hit the unemployment lines, it’s nice to know that we have the luxury of corporate sponsored sports. Of course in these corporate named stadiums, the number of fans will dwindle as they can’t afford to pay for tickets. Then the team owners will be in a pickle since they can’t keep up with everything pledged in these contracts with the failing corporations.  After that we will get into looking at bailing out that sports franchises. Pandora’s Box is now open for business.

Geez.

The U.S. government has agreed to guarantee over $300 billion of Citigroup's troubled assets -- loans and securities backed by residential and commercial real estate and other such assets -- with conditions attached. These conditions are being hammered out.

In addition, the U.S. Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program (TARP) in exchange for preferred shares with an 8 percent dividend. Citigroup will comply with enhanced executive compensation restrictions and implement the Federal Deposit Insurance Corp's mortgage modification program. This is on top of the $25 billion that the government gave Citi in October.

But how dare the automakers even think about asking for $25 billion. Why in the world would we bail out all those blue collar workers, when these white collar workers need a life line?

Paul Krugman isn’t thrilled about this bailout either, even though it was necessary:

Mark Thoma has the rundown of informed reactions. A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

The Bush administration is simply giving away our country now. There was no conditions tied to this bailout to open up credit markets, or for the company to even restructure. The CEO and other chief officers that get Citigroup into this mess get to stay. It was a handout, not a bailout.

Update

Robert Reich weighs in also:</p>

This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.

Meanwhile, more than a million workers in the automobile industry, along with six million mortgagees, and a millions of Americans who depend on small businesses and retailers for paychecks, are getting nothing at all.

“The American public, including the media, have not the slightest clue what just happened” – that is an understatement.

The frozen credit markets are creating a snowball effect. Take the auto industry. The obvious is that people can’t get loans to buy new cars. The not so obvious is that the auto industry (and countless companies) rely upon credit to pay the bills and make payroll. Now they can’t take out the loans. TARP was supposed to open up the credit markets, but it hasn’t. Instead the Bush administration decided to try other things, and has made the situation that much worse. In other words, we are sailing into the abyss and have no one at the helm.

We are hearing that a lot lately. It is a very tough situation to wrap your head around, but while people are saying we should let the auto industry go, no one is saying what to do with the millions of jobs it will cost.

It’s not that we need to bailout the auto industry, it’s that we need to secure the biggest sector of the manufacturing division. How does the opposition plan on employing all the people who lose their job when the American auto industry goes the way of the pet rock? What about all the diners, uniform suppliers, parts suppliers, and other businesses that are needed and supported by the auto industry? How do you save the towns that will be totally destroyed by the closing of their local auto plant?

Everyone can say no so easily, but no one can give plans on how to deal with the results of that no.

That’s why I have been behind Pelosi’s plan. Do I really want to see us throw $25 billion at the auto industry, when we don’t even have things like universal healthcare? Of course not, but I also realize we need the auto industry. If they are to get the money then they get it with strong conditions tied to it. Restructure the auto industry. Make them more efficient. Force them to produce cars that compete with the foreign market and help our environment.

Here are some interesting things I have heard on various shows over the past few days.

• Toyota was looking to open a plant up in Alabama. Toyota does have an aptitude/intelligence test required to work for them. They could not find enough employees that could pass the test. In the end they ended up moving to Canada, which turned out to be much better. They found the workers and were even able to pay them more, because Toyota did not have to pay for health insurance.
• Japanese automakers have a policy for CEO pay. The CEO can not make more than 10x the lowest paid employee. If the lower person gets paid $20,000 a year, that means the CEO can only make $200,000 a year.
• Japanese automakers don’t have unions. Their employees also don’t want unions, because their employer treats them so well.

(As to the issue of an intelligence test and the employees being happy, I can attest to that. I know a few people who work for Toyota and they have all verified this to me.)

So we see models there that are working out very well for other countries. Why don’t we try and mimic them? The health care issue alone should be more than enough reason. Health insurance is the highest rising cost associated with employment. If employers didn’t have to worry about that, then the money would go back to the worker, which would then end up back in the economy. Sometimes the answer is so simple.

Think of how that would also save companies when it comes to employees being off sick. A healthy workforce equates to a stronger workforce. Productivity goes up and production costs go down.

And how much is enough? How much money does one man need to make? We need to seriously limit bonuses and salaries for big wigs. CEO pay has skyrocketed while employee compensation has remained stagnant over the past 30 years. It should come as no surprise that this has something to do with our failing economy and middle class. It’s time to tell these companies that their CEO pay will be limited, and to help make sure they stay here in the U.S., we also put legislation in making it hard for them to leave the country.

If we don’t take the right course of action here, then America as we know it is gone. I hate to sound all “gloom and doom”, but that is the simple fact. We need a well thought out plan for the auto makers tied with a radical restructuring, similar to that of what the Japanese are doing. If our leaders are at a loss, then I highly suggest they check out the movie Gung Ho.

That’s what Paulson decided to tell Congress today:

What I also find interesting is how they are now saying they will leave Obama with about 1/2 of the $700 billion from the bailout. So why didn’t they just ask for $350 billion to start with? Why all the drama and demanding the full $700 billion? These people have very serious questions to answer.

That’s what it seems like the Republicans are heading for – a policy of saving white collar jobs, while letting blue collar workers hit the unemployment lines:

Top Republican senators said Sunday they will oppose a Democratic plan to bail out Detroit automakers, calling the U.S. industry a "dinosaur" whose "day of reckoning" is coming. Their opposition raises serious doubts about whether the plan will pass in this week's postelection session.

Democratic leaders want to use $25 billion of the $700 billion financial industry bailout to help General Motors Corp., Ford Motor Co. and Chrysler LLC.

Sens. Richard Shelby of Alabama and Jon Kyl of Arizona said it would be a mistake to use any of the Wall Street rescue money to prop up the automakers. They said an auto bailout would only postpone the industry's demise.

So we should just let a million plus jobs go away? And it’s not just the actual jobs in the auto industry, it’s also all the businesses that thrive upon them. I’m talking about the restaurants and hotels that rely heavily upon the patronage of auto workers. The Cincinnati area has seen the effects of this first hand countless times in the past, and it isn’t a pretty picture.

It seems like the hands opening up for the free government money, aka the bailout, are increasing faster than our unemployment numbers. Now the insurance companies are lining up for their Christmas gifts:

Several insurers, including Hartford Financial Services Group and Genworth Financial Inc., made last-minute bids for billions of dollars in government money Friday.

Hartford Financial said that it agreed to buy a small savings and loan, helping the giant insurer apply for a government investment of up to $3.4 billion.

Don’t you like that trick? Want government money? Buy a troubled banking company. Welcome to the economy George built. We throw true business standards out the window and instead redistribute the wealth from the bottom up.

Pelosi is putting forward a plan that really sounds good:

Pelosi said the auto industry funds would come with many strings attached, including restructuring company finances, meeting new standards for gas mileage and requiring advanced technologies "to compete in the domestic and global market." The speaker's office offered no specifics about what the new fuel efficiency standards would be and what types of technologies would be required for the auto industry.

This has been a really telling year for the auto industry. They saw their sales plummet this summer when we had gas over $4.00 a gallon. It seems no one wanted a 13 mpg Hummer. Go figure…

After that we saw the new hammer come down on the auto industry – the credit crunch. Besides people not being able to afford gas (not because of the high price now, but because of a crapping out economy) they also can’t get the credit to finance a new car. It has been a double whammy for the auto industry.

I can't say that this comes as any shock:

In the six weeks since lawmakers approved the Treasury's massive bailout of financial firms, the government has poured money into the country's largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

"It's a mess," said Eric M. Thorson, the Treasury Department's inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

Isn't that irony? We got into this mess because of a lack of oversight, a cornerstone of the GOP platform, and now the mess is getting even worse after the government got involved - because of a lack of oversight. If people can be so trusted to do the "right thing" without oversight, then why do we have laws and law enforcement?